The Effects of Uncertainty and Sunk Costs on Firms’ Decision-Making: Evidence from Net Entry, Industry Structure and Investment Dynamics

  • Vivek Ghosal
Part of the Contributions to Economics book series (CE)


This paper presents selected evidence on the impact of uncertainty and sunk costs on firms’ decisions related to entry and exit, and investment expenditures. Evidence from a large sample of US manufacturing industries shows that greater uncertainty about profits significantly lowers net entry as well as investment. The negative effects are most pronounced in industries that are dominated by small firms and have high sunk costs. We note some implications for policy related to antitrust, employment and economic stabilization.


Small Business Small Firm Total Factor Productivity Great Uncertainty Total Factor Productivity Growth 
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Copyright information

© Springer Physica-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  1. 1.Georgia Institute of TechnologyAtlantaUSA

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